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Keywords:foreign exchange 

Discussion Paper
The Turnaround in Private and Public Financial Outflows from China

China lends to the rest of the world because it saves much more than it needs to fund its high level of physical investment spending. For years, the public sector accounted for this lending through the Chinese central bank?s purchase of foreign assets, but this changed in 2015. The country still had substantial net financial outflows, but unlike in previous years, more private money was pouring out of China than was flowing in. This shift in private sector behavior forced the central bank to sell foreign assets so that the sum of net private and public outflows would equal the saving surplus ...
Liberty Street Economics , Paper 20160509

Working Paper
The pricing of FX forward contracts: micro evidence from banks’ dollar hedging

We use transaction-level data on foreign exchange (FX) forward contracts for the period 2014 through 2016 in conjunction with supervisory balance sheet information to study the drivers of banks? dollar hedging costs. Comparing contracts of the same maturity that are initiated during the same hour of the same day, we find large heterogeneity in banks? hedging costs. We show that these costs (i) are higher for banks with a larger FX funding gap, (ii) depend on banks? FX funding composition in terms of the source (interbank versus retail) and rollover structure (long-term versus short-term), ...
Working Papers , Paper 18-6

Journal Article
Warehousing: A Historical Lesson in Central Bank Independence

This Economic Commentary explains how warehousing?a seemingly innocuous institutional arrangement between the Federal Reserve and the US Treasury?came to threaten the Fed?s independence. Warehousing began as an arcane procedure designed to help the Treasury cover a specific type of foreign-exchange exposure. It then grew into a supplemental source of funding for the Treasury's foreign-exchange interventions. Eventually the procedure morphed into a sizeable off-budget source of funding for other Treasury activities and seemed an inappropriate subversion of the congressional appropriations ...
Economic Commentary , Issue August

Working Paper
The role of direct flights in trade costs

The role of direct flights in trade costs is investigated by introducing and using a micro price data set on 49 goods across 433 international cities covering 114 countries. It is shown that having at least one direct flight reduces trade costs by about 1,400 miles in distance equivalent terms, while an international border increases trade costs by about 14,907 miles; hence, the positive effects of having at least one direct flight between any two cities can compensate for about 10% of the negative effects of an average international border. Trade costs also decrease with the number of direct ...
Globalization Institute Working Papers , Paper 179

Journal Article
The Fed's Foray Into Forex

Although very uncommon now, the Fed used to intervene regularly in foreign exchange markets
Econ Focus , Issue 2Q , Pages 4-7

Speech
The global implications of diverging monetary policy settings in advanced economies

Panel Remarks at the Sixth High Level Conference on the International Monetary System: Monetary Policy Challenges in a Changing World, Zurich, Switzerland.
Speech , Paper 169

Report
Arbitrage-free affine models of the forward price of foreign currency

Forward foreign exchange contracts embed not only expected depreciation but also a sizable premium, which complicates inferences about anticipated returns. This study derives arbitrage-free affine forward currency models (AFCMs) with closed-form expressions for both unobservable variables. Model calibration to forward term structures of eleven U.S.-dollar currency pairs from the mid-to-late 1990s through early 2014 fits the data closely and suggests that the premium is indeed nonzero and variable, but not to the degree implied by previous econometric studies.
Staff Reports , Paper 665

Working Paper
Chinese Foreign Exchange Reserves, Policy Choices and the U.S. Economy

China is both a major trading partner of the United States and the largest official holder of U.S. assets in the world. The value of Chinese foreign exchange reserves peaked at just over $4 trillion in June 2014, but has since declined to $3.19 trillion as of August 2016. This very large decline is in foreign exchange reserves is unprecedented and some analysts have speculated that continued sales of these (mostly U.S.) assets might significantly impact the U.S. and global economies. This article explains the reasons for this large decline in official assets, what China?s policy choices are, ...
Working Papers , Paper 2017-1

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